Rail pricing steady despite challenges, study finds

Railroad carriers are keeping prices steady despite uncertainty in the market stemming from the weak economy, modal shift and political factors, according to a recent survey of rail shippers conducted by Cowen and Co.
In the third-quarter survey, shippers said they expect a 3.6 percent base rate hike over the next six months to a year, despite the hope that prices were dropping after Cowen predicted a 3.5 percent rate hike during the second quarter.
At the same time, shippers see their business increasing 4.3 percent over the next year, fueled by petroleum, consumer and agricultural products; metals, forest products, chemicals and building products are expected to take a lesser role over the coming year than anticipated during Cowen’s second quarter survey.
Shippers also found that rail shipping is more expensive than moving their freight by truck because a truckload capacity crunch hasn’t materialized, the price of diesel has stayed relatively steady and concerns about rail capacity are growing. The number of shippers who have shifted from highway to rail shipping is also in decline due to “the persistence of low truck pricing,” Cowen said.
Cowen did find, however, that 28 percent of the shippers surveyed are still moving from truck to rail, but this result showed a more than 10 percent decline from the previous quarter. Nearly 30 percent of those making the shift are doing so because of higher truck pricing, while 24 percent are worried about truck capacity. The remaining respondents also cited increased rail service, environmental issues and trucking regulations as reasons for the switch.
Adding a new question to the survey, the company asked about stronger rail regulations in the aftermath of crude-oil crashes, including the July incident in Quebec. A little under half of the respondents said they believe no new regulations are needed, while 11 percent thought new procedures needed to be introduced. The remaining respondents said they were unsure.
“The third quarter survey results highlight the resiliency of rail pricing power. Price expectations remained solid despite continued economic weakness and a notable decline in shipper confidence, which may be in part attributable to the current government stalemate,” Cowen wrote in the report. “The worsened employment outlook could be a real cause for concern for an economy that is already moving at a snail's pace.”